2017 Pre- Week Notes in Taxation Law by Atty. Rizalina v. Lumbera.docx

JURISTS BAR REVIEW CENTER™ PRE-WEEK NOTES TAXATION LAW Atty. Rizalina V. Lumbera 2017 Bar Examinations 1. Compromise vs Abatement compromise: contract where by the parties, by making reciprocal concessions, avoid litigation or put an end to one commenced. Grounds for compromise: a. doubtful validity of the assessment (amount : 40% of the principal amount of tax) b. financial incapacity of TX (amount: 10% of the principal amount of tax) The following cannot be the subject of compromise: a. b. c. d. e. f.

withholding tax cases; criminal cases involving fraud; criminal cases already filed in court; delinquent accounts with approved schedule of payments; BIR cases where final reports of reinvestigation or reconsideration have been issued and the TX is agreeable; Cases with final judgments;

Abatement: involves the cancellation of entire tax liability when the tax or any portion thereof appears to be unjustly or excessively assessed; when the administration or collection costs do not justify the collection of the amount due;

2. VIP: Taxability of income depends on the KIND OF TAXPAYER, SOURCE OF INCOME, AND KIND OF INCOME. 3. HOW DO WE DETERMINE INCOME FROM SOURCES WITHIN THE PHILIPPINES? (Section 42, NIRC) The following are income from WITHIN: Interests. - Interests derived from sources within the Philippines, and interests on bonds, notes or other interest-bearing obligation, of residents, corporate or otherwise; Dividends. - The amount received as dividends: (a) from a Domestic Corporation (DC); and (b) from a Foreign Corporation (FC), unless less than fifty percent (50%) of the gross income of such foreign corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends or for such part of such period as the corporation has been in existence) was derived from sources within the Philippines as determined under the provisions of this Section; but only in an amount which bears the same ratio to such dividends as the gross income of 2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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the corporation for such period derived from sources within the Philippines bears to its gross income from all sources. Services.- Compensation for labor or personal services performed in the Philippines; Rentals and Royalties, Sale of Real Property - Rentals and royalties from property located in the Philippines or from any interest in such property; Sale of Personal Property – If produced in the Phils but sold outside OR produced outside but sold in Phils, PARTLY WITHIN AND PARTLY WITHOUT; If purchased within and sold outside OR purchased from outside and sold in the Philippines, WITHIN; 4. "Corporation" shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participacion), association, or insurance companies, but does not include general professional partnerships (GPP) and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating consortium agreement under a service contract with the Government. GPPs are partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business; PARTNERSHIPS ARE TREATED AS CORPORATE TAXPAYERS WHICH ARE FURTHER CLASSIFIED INTO GENERAL PROFESSIONAL PARTNERSHIPS (GPP) OR GENERAL CO-PARTNERSHIPS (GCP). A GPP IS EXEMPT FROM PAYMENT OF INCOME TAX AS A COPORATE TAXPAYER, WHILE A GCP IS LIABLE FOR INCOME TAX.

5. Non-Resident Aliens: A NRA who shall come to the Philippines and stay therein for an aggregate period of more than one hundred eighty (180) days during any calendar year shall be deemed a 'nonresident alien doing business in the Philippines’. Indicators that an alien is engaged in Trade or Business in the Philippines:  stay in the Philippines for an aggregate period of more than 180 days in a calendar year;  principle of habituality in entering into commercial transactions in Phils;  appointment of agents in the Phils;  hiring of employees in the Phils;  putting up a branch in the Phils; The same rules (except for the 180 day period) apply to distinguish a RFC from NRFC;

6. Non-Resident Citizens: a. A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein. b. A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis. c. A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year. 2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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d. A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a nonresident citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival in the Philippines. The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may be for purpose of this Section.

7. TABLE/RULES ON TAXABILITY OF INDIVIDUAL AND CORPORATE TX FOR INCOME TAX PURPOSES

KINDS OF INCOME AND TAXES KINDS OF TXPAYERS

ALL INCOME OTHER THAN (B), ( C ), (D) (A)

SOURCE OF INCOME

W/IN

W/OUT

PASSIVE INCOME

CG ON SALE OF S OF S

CG ON SALE OF RP

(B)

(C)

(D)

INDIVIDUALS (including estates and trusts) RC

✔

✔

NIT

FWT

FWT

FWT

NRC

✔

✖

NIT

FWT

FWT

FWT

RA

✔

✖

NIT

FWT

FWT

FWT

NRAETB

✔

✖

NIT

FWT

FWT

FWT

NRANETB

✔

✖

FWT

FWT

GIT/FT

KINDS OF INCOME AND TAXES

KINDS OF TXPAYERS

ALL INCOME OTHER THAN (B), ©, (D)

PASSIVE INCOME

CG ON SALE OF S OF S

CG ON SALE OF RP

W/OUT

(A)

(B)

(C)

(D)

SOURCE OF INCOME

W/IN CORPORATIONS ( including GCP) DC

✔

✔

NIT

FWT

FWT

FWT

RFC

✔

✖

NIT

FWT

FWT

N/A

NRFC

✔

✖

FWT

N/A

GIT/FT

2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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ADDITIONAL TAXES FOR CORPORATIONS INTERCORPORATE DIVIDENDS DC

D-D Exempt

RFC

D-RFC Exempt

NRFC

D-NRFC 15% FWT

MCIT 2% OF GI 2% OF GI N/A

IAET

BPRT

10% FWT

N/A

N/A

15% FWT

N/A

N/A

Rules for Individual TX: a. Among all individual taxpayers, only RC is taxed for income within and outside the Phils; b. All kinds of taxpayers are similarly taxed for income within EXCEPT:  NRA engaged in t/b- 20% Final tax on cash and property dividends  NRA not engaged in t/b are taxed on the gross income; c. All kinds of individual taxpayers are subject to CGT on sale of shares of stock; d. All kinds of individual taxpayers may be exempt from 6% CGT on sale of real property; Rules for Corporate TX: a. MCIT is in lieu of 30% corporate NIT while IAET is in addition to all other taxes imposed upon the corporation. This is imposed beginning the 4th year following the commencement of its operations; b. Prizes and Winnings of DC are subject to NIT and considered as income in the ordinary course of its trade or business; c. Unlike individuals, interest income from long term deposits of DC are not exempt from FWT; d. Dividends received by a DC from another DC are exempt from tax. These are called Inter-corporate dividends; e. IAET is in addition to corporate taxes and imposed on corporations which retain earnings beyond reasonable business needs;

8. List of Income NOT SUBJECT TO IT GENERAL RULE: all income subject to income tax (CGDIRAP):; Exception: unless specifically excluded from computation of GI or exempted by law; a. income from without of NRC, NRAETB, NRANETB, RFC, AND NRFC; b. income of GPP’s, Joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating consortium agreement under a service contract with the Government; c. gains from sale of assets (capital or ordinary) of NRC,NRAETB,NRANETB,RFC,NRFC which properties are located outside of the Philippines; 2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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d. Sale of real property located in the Philippines treated as capital asset shall be exempt from CGT of 6%, provided the ff requisites are complied with:

e. f. g. h.

i. j. k. l. m. n. o. p. q. r.

s.

t. u.

v.

The exemption applies to all kinds of individual TX only, not to corporate TX; i. The real property sold must be the actual principal residence of the taxpayer/seller; ii. Seller must inform the BIR of his intention to avail of the exemption (within 30 days from sale); iii. Seller must build or purchase another principal residence within 18 months from sale; iv. Proceeds from the sale should be used in building/purchasing new principal residence v. 6% CGT will be applied proportionately to proceeds not used for new principal residence. interest on time or long term bank deposits in local banks which TX did not preterminate for a period of five(5) years), applicable only to individuals; PCSO/LOTTO winnings; Prizes and awards in sports competitions sanctioned by the national sports commission; Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievements but only if the recipient was selected without any action on his part to enter the contest or proceeding and the recipient is not required to render substantial future services as a condition to receiving the prize or award; Dividends issued by a DC in favor of another DC; Dividends issued by a DC in favor of a RFC; Proceeds of Life Insurance policy received by the insured, heirs, beneficiary but interest shall be subject to IT; Proceeds of property insurance to reimburse damage to property; Proceeds of medical, health and accident insurance to reimburse hospitalization expenses, sickness, or injury sustained; Return of premium; Gifts, bequests, devises, but the same shall be subject to ET or DT depending on the mode of transfer; Income exempt under a treaty; Actual damages as compensation for death, sickness, or injury. All other damages shall be subject to IT; Statutory minimum wage of Minimum Wage Earners (MWE); SMW of employees including HP,HP, OP, NSD shall be exempt from income tax. The law is very clear on its intent without any further qualifications, thus, the BIR Issuance, providing that a MWE who receives other benefits in excess of P 82,000.00 OR deriving income from other sources, is NULL AND VOID. Soriano et.al. vs DOF and CIR, et.al. ( 184450/184508/184538/185234), 24 January 2017 Managerial/supervisory employees for DMB within limits and 13th month pay and other benefits not exceeding P 82k; note: if prior to jan 1 2015, limit for 13th month pay and other benefits is P 30k; Employee benefits furnished by the employer for the convenience of the employer or necessary for the trade of business of the employer; Separation pay for causes beyond the control of the employee ( redundancy, retrenchment, illegal dismissal and in lieu of reinstatement); backwages, and damages in labor cases are subject to IT; compensation of loss of earning capacity, subject to IT; Retirement benefits from GSIS,SSS, US Veterans Act;

2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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w. Retirement benefits from private retirement plan maintained by the employer provided employee is at least 50 yrs old, with continuous service of 10 yrs, avails of retirement only once with the employer, the retirement plan is approved by BIR; x. Retirement benefits if without retirement plan maintained by the employer provided employee is at 60 yrs old with continuous service of 20 yrs; y. Benefits received from Pag-ibig and Philhealth; z. Campaign contributions received by political parties or candidates ( winning or losing) if not fully utilized by the party or candidate; aa. Association dues paid by homeowners in a subdivision: exempt from IT provided the following requisites are complied with: (1). HOA is duly constituted as defined under RA 9904; (2). LGU issues a certificate stating the basic community services and facilities supplied by HOA and that LGU’s lack of resources to provide, such as basic services which redound to the benefit of all HOA members, ie, security, street and vicinity lights , maintenance, repairs and cleaning of streets, garbage collection/disposal; (3). HOA shows proof that income and dues are used for basic services; But association dues paid by homeowners in a condominium corporation are subject to IT and VAT; bb. De Minimis Benefits (DMB) received by all kinds of employees; DE MINIMIS BENEFITS (DMB) (AS AMENDED BY RR 1-2015) MONETIZED UNUSED VL (private sector)

10 DAYS

MONETIZED VL/SL (government)

no limit NOT EXCEEDING P 750/EMPLOYEE/SEM OR P 125/MO

MEDICAL CASH ALLOWANCE TO DEPENDENTS OF EMPLOYEES RICE SUBSIDY

P 1,500/MO OR ONE SACK OF RICE OF 50KG/MO ( P 1,500.00)

UNIFORM/CLOTHING ALLOWANCE

P 5,000/YEAR (PER RR 8-2012)

ACTUAL MEDICAL ASSISTANCE

NOT EXCEEDING P 10,000/YEAR

LAUNDRY ALLOWANCE

NOT EXCEEDING P 300/MO

ACHIEVEMENT AWARDS

NOT EXCEEDING P 10,000/YEAR

GIFTS GIVEN DURING CHRISTMAS/ANNIVERSARY CELEBRATIONS

NOT EXCEEDING P 5,000/EMPLOYEE/YEAR

DAILY MEAL ALLOWANCE FOR OT/NIGHT/GRAVEYARD SHIFT

NOT EXCEEDING 25% OF BASIC MINIMUM

NEW (2015): BENEFITS RECEIVED BY AN EMPLOYEE PURSUANT TO CBA AND PRODUCTIVITY INCENTIVE SCHEME

NOT EXCEEDING P10,000.00/YR/EMPLOYEE (PER RR 1-2015)

NOTE: IF NOT PART OF ABOVE LIST

NOT DE MINIMIS, IE, TAXABLE/SUBJECT TO WT

2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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9. Exemption from CGT for sale of real property: Requisites: a. The real property must be the actual principal residence of the taxpayer/seller; b. Seller must inform the BIR of his intention to avail of the exemption (within 30 days from sale); c. Seller must build or purchase another principal residence within 18 months from sale; d. Proceeds from the sale should be used in building/purchasing new principal residence e. 6% CGT will be applied proportionately to proceeds not used for new principal residence. All kinds of individual taxpayers can avail of the exemption from payment of CGT for sale of real property, except corporate taxpayers. NRANETB but employed in MNC’s, OBUs, and Petroleum Service Contractors and Subcontractors may qualify for the exemption. Actual principal residence is the place where though one is absent, he has the intention of returning to and does not require continuous uninterrupted stay. Stay may be interrupted due to work, studies, and similar circumstances; 10. Exempt Organizations (Section 30 in relation to Constitution) The organizations listed under Section 30 of NIRC shall be EXEMPT FROM NIT in respect to income received by them AS SUCH but income of whatever kind and character from real or personal property, or from activity conducted for profit, regardless of disposition, shall no longer be exempt; Two tests applied to determine exemption: organization test and operational test. Organizational test requires that the corporation or association constitutive documents exclusively limit its primary purpose to those described in Sec. 30 of the 1997 Tax Code. Operational test requires that the regular activities of the corporation or association be exclusively devoted to the accomplishment of the purpose specified in Sec. 30 of the 1997 Tax Code. "A corporation or association fails to meet this test if substantial part of its operation are considered "activities conducted for profit." “Non-stock”: no part of income is distributed as dividends and any profit as incident of operations, shall be used for furtherance of its purpose; “Non- profit”: no net income or asset accrues to or benefits any member, with all net income or asset devoted to purpose and all its activities conducted not for profit; NOTE: For exemption to apply as NSNP corporation under Section 30, NIRC, its earnings/assets ―shall not INURE to the benefit of any trustee, officer, member, or specific person‖ Considered as “INUREMENT” 1. Payment of compensation, salaries, honorarium to trustees or organizers; 2. Payment of exorbitant or unreasonable compensation to employees; 3. Provision of welfare aid/financial assistance to members; 4. Donation to any person/entity; 5. Purchase of goods/services in excess of FMV from an entity where trustee, officer has an interest; 6. Upon dissolution, assets are distributed to trustees, organizers, officers, members 2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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11. Table on Taxability/Exemption of Various Organizations: (NIRC, LGC, CONSTITUTION)

CI/RO /Charitable Hospital

A . P r e v i o u s

RPT

EXEMPT: income as such but income from properties or from activity conducted for profit regardless of disposition shall be subject to tax

R u l e s : A l l

EXEMPT: provided ADE used for charitable, religious, educational purpose

NSNPEI EXEMPT: provided ADE used for charitable, religious, educational purpose

SEE NOTES BELOW ON RMO 44-2016; CIR VS ST. PAUL COLLEGE MAKATI; CIR VS. DE LA SALLE UNIVERSITY

PEI and Hospital

GOVT Agency/GEI

EXEMPT: provided ADE used for charitable, religious, educational purpose

EXEMPT: unless beneficial use pertains to nonexempt entity

SUBJECT TO 10% OR 30% NIT. If income from UTA does not exceed 50% of total income, NIT of 10%; if income from UTA exceeds 50% of total income, NIT of 30%

Income from governmental functions are EXEMPT; Income from proprietary functions are subject to tax; If GEI, income as such EXEMPT but income from properties or from activity conducted for profit regardless of disposition shall be subject to tax

GIFTS/Donations RECEIVED BY THESE INSTITUTIONS are NOT SUBJECT TO IT; Gifts, bequests, and devises are items of exclusions from gross income

IT

i n c o m e f r o m f a c i l i ET/DT t i e

Gifts/Donations are Deductible from GI of donor; Ind (purely compensation income earner, no deduction); Ind (business income earner, up to 10% of taxable income prior to this deduction); Corp ( up to 10% of taxable income prior to this deduction

Gifts/Donations are Deductible from GI of donor; Ind (purely compensation income earner, no deduction); Ind (business income earner, up to 10% of taxable income prior to this deduction); Corp ( up to 10% of taxable income prior to this deduction

NOT DEDUCTIBLE from Gross Income of donors

DEDUCTIBLE in full provided for priority projects, otherwise we apply the 10%/5% restriction

EXEMPT: Transfer of property mortis causa or intervivos, provided not more than 30% of the gift is used for administration purposes;

EXEMPT: Transfer of property mortis causa or intervivos, provided not more than 30% of the gift is used for administration purposes;

Subject to ET/DT

EXEMPT: No qualification

2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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12. RULES for NSNPEI: A. Previous Rules: All income from facilities within campus operated and maintained by the school shall be exempt from tax ( canteen, dormitory, and bookstore as ancillary services). However, they shall be subject to internal revenue taxes on income from trade, business or activity, the conduct of which is not related to the exercise or performance by such institutions of their educational purposes or functions ( ie. Rental payment from their building/premises). The interest income from currency bank deposits and yield from deposit substitutes instruments actually, directly, and exclusively in pursuance of their purposes as an educational institution are exempt from the 20% final tax and 7 ½ % tax on interest income under the expanded foreign currency deposit system upon compliance of certain conditions; B. AS OF JULY 26, 2016 : Revenues pursuant to educational purpose and used ADE for educational purpose ARE EXEMPT; MEANING SOURCE IS IMPORTANT; RMO 44-2016 issued on July 26, 2016; CIR vs St. Paul College of Makati (GR 215383, 08 March 2017); It is clear and unmistakable from the constitutional provision that NSNPEIs are constitutionally exempt from tax on all revenues derived in pursuance of its purpose as an educational institution and used actually, directly and exclusively for educational purposes. This constitutional exemption gives the non-stock, non-profit educational institutions a distinct character. And for the constitutional exemption to be enjoyed, jurisprudence and tax rulings affirm the doctrinal rule that there are only two requisites: (1) The school must be non-stock and non-profit; and (2) The income is actually, directly and exclusively used for educational purposes. There are no other conditions and limitations. C. AS OF 09 NOVEMBER 2016: REGARDLESS OF SOURCE AS LONG AS REVENUES ARE ADE USED FOR EDUCATIONAL PURPOSE, EXEMPT FROM TAX. SECTION 30 (in so far as NSNPEI) is declared CONTRARY TO CONSTITUTION G.R. No. 196596, November 09, 2016 – CIR v. DE LA SALLE UNIVERSITY, INC.; G.R. No. 198841 - DE LA SALLE UNIVERSITY INC., v. CIR; G.R. No. 198941 – CIR v. DE LA SALLE UNIVERSITY, INC., Respondent. ISSUE: (1) income tax on rental earnings from restaurants/canteens and bookstores operating within the campus; (2) value-added tax (VAT) on business income; and (3) documentary stamp tax (DST) on loans and lease contracts. When a NSNPEI proves that it uses its revenues actually, directly, and exclusively for educational purposes, it shall be exempted from income tax, VAT, and LBT. When it also shows that it uses its assets in the form of real property for educational purposes, it shall be exempted from RPT. So long as the Assets or Revenues are used actually, directly and exclusively for educational purposes, they are exempt from duties and taxes. The Constitution DOES NOT require that the revenues and income must be sourced from educational activities or 2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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activities related to the purposes of an educational institution. The phrase all revenues is unqualified by any reference to the source of revenues. So long as the revenues and income are used actually, directly and exclusively for educational purposes, then said revenues and income shall be exempt from taxes and duties. For NSNPEI, the last paragraph of Section 30 of NIRC is without force and effect for being contrary to the Constitution insofar as it subjects to tax the income and revenues of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purpose. We make this declaration in the exercise of and consistent with our duty to uphold the primacy of the Constitution. THIS RULING APPLIES ONLY TO NSNPEI as provided in the Constitution, AND DOES NOT COVER the other exempt organizations under Section 30 of the Tax Code.

13. INCOME EXCLUDED FROM COMPUTATION OF GI ( no income tax) 

Proceeds of Life Insurance Policy but any interest earnings of proceeds are INCLUDED in GI; For estate tax purposes, not subject to ET provided that the designated beneficiary is not himself, his estate, his executor, or administrator AND designation is irrevocable; Proceeds of accident insurance, health insurance, property insurance, EXCLUDED from GI NOT SUBJECT TO TAX as they are mere reimbursements for the injury/damage sustained;

 

 

 



Return of Premium; Gifts, bequests, and devises; For ET/DT purposes, subject to tax unless given to CI, RO, NSNPEI, in which case the 30% restriction applies. If recipient is the government, no ET/DT; Compensation for injuries or sickness: only actual damages are excluded; Retirement benefits are included and taxable except: SSS; GSIS; US Veteran’s Act; RA 7641 (50 yrs old and 10 yrs in service); retirement benefits without retirement plan ( 60 yrs old and 20 yrs in service); retirement benefits of govt employees; Prizes and awards in sports competitions sanctioned by the national sports commission; Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievements but only if the recipient was selected without any action on his part to enter the contest or proceeding and the recipient is not required to render substantial future services as a condition to receiving the prize or award; 13th month pay and other benefits not exceeding (total in one year) P82,000.00;

14. Table/Rules on taxability/exemption of employee benefits EMPLOYEE BENEFITS EMPLOYEE

DMB Basic Pay

M/S

C (NIT)

R/F

C (NIT)

OT/HP/HP/NSD

w/in limits exempt

C (NIT)

exempt

excess transfer to 82k limit

OTHER BENEFITS w/in 82k limit

excess

exempt

FB

exempt

C (NIT)

2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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MWE

SMW(Exe mpt)

exempt

exempt

exempt

C (NIT)

If the benefit is either (1) furnished for the convenience of the employer or (2) necessary to the trade or business of the employer, it is not income, not compensation, not fringe benefits and not taxable. 15. COMPENSATION FOR DEATH, PHYSICAL INJURIES, PHYSICAL DISABILITY PAID BY EMPLOYER TO EMPLOYEE OR HIS HEIRS, OR FOR CAUSES BEYOND THE CONTROL OF EMPLOYEE a. Not income as mere compensation for the damage or loss of life; b. Separation pay for retrenchment, redundancy, or any labor saving device is income but not subject to tax due to causes beyond control of employee; c. Backwages in case of illegal dismissal, income and subject to tax; d. Separation pay in case of non-reinstatement of employee due to strained relation between employer and employee after illegal dismissal, income but not taxable for cause beyond the control of the employee; e. Award of moral, exemplary and nominal damages in illegal dismissal cases, are income but if strictly interpreted, should be subject to tax. In liberal interpretation, these are exempt due to causes beyond control of employee. However, exemptions are strictly construed against taxpayer claimant; 16. Campaign Contributions to election candidate/political party Not subject to income tax and donor’s tax provided: a. received during official campaign period; b. fully utilized for campaign expenditures; c. candidate/party files SOCE; d. withholding tax of 5% is withheld and remitted to BIR; e. Donations made by CORP are in violation of Sec 39 of Corp Code, thus, subject to IT/DT; ( “ no corporation, domestic or foreign, shall give donations in aid of any political party or candidate or for purposes of partisan political activity”); 17. DEDUCTIONS from Gross Income SUMMARY OF AVAILABLE DEDUCTIONS IND (Compensation income earner)

PE,AE,PHHI

IND ( Business Income Earner OR combined BI and CI)

PE, AE, OSD (40% of GR/GS) OR PE, AE, ITEMIZED DEDUCTIONS (ID)

CORP

OSD (40% of GR/GS) OR ID

NOTES:  

NRANETB and NRFC are not allowed to claim deductions because they are taxed on the gross income; For TX allowed to claim deductions, deductions are applicable on for income subject to NIT;

2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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 



TX without any income derived from Philippine sources are not allowed to claim deductions; Among aliens, a NRAETB is entitled to claim personal exemptions subject to reciprocity rule or in the amount equal to the exemptions allowed in the income tax law in the country of which he is a subject - or citizen, to citizens of the Philippines not residing in such country, not to exceed the amount of P 50,000.00 as exemption for citizens or resident of the Philippines: Provided, That said nonresident alien should file a true and accurate return of the total income received by him from all sources in the Philippines, as required by this Title. All kinds of individual taxpayers are not allowed to claim for deductions on income which are subject to final withholding taxes such as passive income, capital gains on sale of shares of stocks and real property;

Requisites of Deductibility of ID under Section 34 of the Tax Code: (1). Necessary in Trade or Business of the taxpayer; (2). Actually paid or incurred; (3). Reasonable in amount; and (4). Supported by documents. 18. EXAMPLES OF EXPENSES AND THEIR DEDUCTIBILITY/NON-DEDUCTIBILITY UNDER SECTION 34: a. Illegal expenses whether business is legal are deductible or illegal but Legitimate expenses whether business is legal or illegal are deductible; b. Capital expenditures ( expenses to purchase assets, or to make an existing asset) ARE NOT DEDUCTIBLE; c. Expenses for major repairs: NOT DEDUCTIBLE; d. Rentals on lease of property provided taxpayer does not acquire interest other than as a mere possessor, thus rentals on lease to own scheme are not deductible as they are capital expenditures already: NOT DEDUCTIBLE; e. Real estate tax on the property leased and shouldered by the lessee is deductible expense on the part of the lessee BUT treated as taxable income on the part of the lessor; f. Cost of improvements introduced by lessee in an ordinary asset are not deductible expense on the part of the lessee as these are capital expenditures on his part but maybe depreciated by the lessee; g. Travel and transportation expenses or expenses while away from home incurred by employers and given to employees pursuant or trade or business when necessary and reasonable are deductible; h. Advertising expenses designed to stimulate/increase the current sale of merchandise or use of services are deductible business expenses; BUT advertising expenses to maintain the sales are NOT DEDUCTIBLE because in the nature of goodwill; i. Compensation to public relations firm for services rendered in carrying on campaign to sell additional capital stock: NOT DEDUCTIBLE j. expenses relating to recapitalization and reorganization of corporation; NOT DEDUCTIBLE k. bribes and kickbacks; NOT DEDUCTIBLE l. expenses for major repairs are not deductible but expenses for minor repairs are deductible; m. personal and living expenses of the taxpayer NOT DEDUCTIBLE as they are already allowed to claim for personal and additional exemptions; n. Premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any trade or business carried on by the taxpayer, individual or corporate, when the taxpayer is directly or indirectly a beneficiary under such policy. NOT DEDUCTIBLE; 2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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o. Losses from Sales or Exchanges of Property. In computing net income, no deductions shall in any case be allowed in respect of losses from sales or exchanges of property directly or indirectly – 1. Between members of a family. For purposes of this paragraph, the family of an individual shall include only his brothers and sisters (whether by the whole or halfblood), spouse, ancestors, and lineal descendants; or 2. Except in the case of distributions in liquidation, between an individual and corporation more than fifty percent (50%) in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual; or 3. Except in the case of distributions in liquidation, between two corporations more than fifty percent (50%) in value of the outstanding stock of which is owned, directly or indirectly, by or for the same individual if either one of such corporations, with respect to the taxable year of the corporation preceding the date of the sale of exchange was under the law applicable to such taxable year, a personal holding company or a foreign personal holding company; 4. Between the grantor and a fiduciary of any trust; or 5. Between the fiduciary of and the fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust; or 6. Between a fiduciary of a trust and beneficiary of such trust. 19. Tax Benefit Rule: applies to a. Taxes claimed and allowed as deductions from gross income when refunded or credited, shall be included as part of gross income in the year of receipt to the extent of the income tax benefit of said deduction; b. Bad debts claimed and allowed as deductions from gross income deducted but subsequently paid or recovered; c. Casualty losses deducted as such but later recovered; 20. PERSONAL EXEMPTIONS/ADDITIONAL EXEMPTIONS 1. PE of P 50,000.00 2. AE of P 25,000.00 per dependent maximum of four; 3. "Dependent" refers to: a. legitimate, illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is not more than twenty-one (21) years of age, unmarried and not gainfully employed; b. if such dependent child, regardless of age, is incapable of self-support because of mental or physical defect; c. PWD Filipino citizen related by consanguinity within 4th degree of relationship to the TX/benefactor, not gainfully employed, and chiefly dependent upon and living with the TX/benefactor; d. PWD Filipino citizen related by affinity within 4th degree of relationship to the TX/benefactor, not gainfully employed, and chiefly dependent upon and living with the TX/benefactor; e. Foster child under supervision of DSWD, living with and dependent for chief support with the TX for a period of at least 12 months; Change of Status: 2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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If the taxpayer marries or should have additional dependent(s) as defined above during the taxable year, the taxpayer may claim the corresponding additional exemption, as the case may be, in full for such year. If the taxpayer dies during the taxable year, his estate may still claim the personal and additional exemptions for himself and his dependent(s) as if he died at the close of such year. If the spouse or any of the dependents dies or if any of such dependents marries, becomes twenty-one (21) years old or becomes gainfully employed during the taxable year, the taxpayer may still claim the same exemptions as if the spouse or any of the dependents died, or as if such dependents married, became twenty-one (21) years old or became gainfully employed at the close of such year. 21. Items Not Deductible from GI a. Personal, living or family expenses; b. Any amount paid out for new buildings or for permanent improvements, or betterments made to increase the value of any property or estate; c. Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made; or d. Premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any trade or business carried on by the taxpayer, individual or corporate, when the taxpayer is directly or indirectly a beneficiary under such policy. 22. NET CAPITAL LOSS CARRY OVER (NCLCO) versus NET OPERATING LOSS CARRY OVER ( NOLCO) a. NOLCO refers to net operating loss carry over which is applicable only to a corporate taxpayer. If a corporate taxpayer has more deductions than gross income, the corporation sustains net operating losses which maybe carried over for three (3) years. Consequently, if during the succeeding year, the taxpayer realized taxable net income, this maybe reduced by the net operating loss carried over from the previous year; b. NCLCO refers to net capital loss carry over which is applicable only to individual taxpayers. This results from exchanges of capital assets wherein gains and losses have been recognized such that during the taxable period, after charging all capital losses from the capital gains, the taxpayer may either realize net capital gains (included in the gross income therefore taxable) OR net capital loss ( which maybe carried over for the next year only); c. NOLCO pertains to expenses and deductions from gross income while NCLCO pertains to exchanges of capital assets; 23. Transfers for Insufficient Consideration: a. If real property, capital asset, located in the Phils sold at gain or loss, impose CGT of 6%; b. If any other property or real property other than capital asset, or located outside Phils, gains are subject to NIT; in case of loss, impose either donor’s tax or estate tax. Impose

2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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estate tax, if transfer is at the same time is in contemplation of death, pursuant to general power of appointment, or revocable transfer; c. ―PAG NAGBENTA NG LUGI, NAMIGAY NG LIBRE‖; d. The ―libre portion is subject to either donor’s tax (Section 100, NIRC) or estate tax (Section 85g, NIRC). Donor’s tax is imposed on the difference between the FMV at the time of sale versus consideration. Estate tax is imposed on the difference between the FMV at the time of death versus the consideration;

24. Transactions Exempt from VAT a. b. c. d.

sale of goods and services to PWD; sale of goods and services to Senior Citizens; if gross sales or gross receipts of TX do not exceed P 1,919,500.00 in a year; membership dues in homeowners association in a subdivision subject to certain requirements; e. lease of residential house with rentals not exceeding P 12,800; lease of commercial area regardless of amount of rentals ( below or more than 12,800) shall be subject to VAT; f. sale of low cost housing units regardless of amount; g. sale of real property not ordinarily held for sale or lease to customers regardless of amount; h. if real property held for sale or for lease to customers, threshold of P 1,919,500 applies; i. sale of lots only with selling price not exceeding P 1,919,500.00; j. sale of house and lot property and residential dwellings (ex. Condominium units) with selling price not exceeding P 3,199,200.00; Note: if adjacent lots are purchased within 12 month period, threshold applied is P 1,919,500 for both lots; if adjacent house and lots are purchased within 12 month period, threshold of P 3,199,200 is applied per house and lot; 25. Transactions deemed sale in VAT: There is no actual sale of goods but the law considers the goods sold, thus, subject to VAT, such as: a. Transfer, use or consumption not in the course of trade or business of goods or properties originally intended for sale or use in the course of trade or business; b. Distribution or transfer to shareholders or investors as share in the profits of Vat registered person or to creditors in payment of debt; c. Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned; and d. Retirement from or cessation of business with respect to inventories of taxable goods existing as of the time of retirement or cessation; 26. Distinctions between 0% and exempt transactions: a. 0% rated transactions are not subject to VAT at all stages while exempt transactions are not subject to VAT only at a particular stage; b. In 0% rated transactions, the input tax attributable to the said transaction is allowed to be credited against the output tax while in exempt transactions, the input tax is not allowed to be credited against the output tax.

2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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27. ADMINISTRATIVE CLAIM FOR REFUND OF VAT ( Section 112 of NIRC) (MC 54-2014)

2 : 120 : 30 • • •

•

•

Administrative claim for refund of Input VAT on zero rated transactions must be filed within two (2) years from close of taxable quarter when sale is made; BIR next decides within 120 days from receipt of claim for refund; If not acted upon by BIR, deemed DENIED; Without a decision or an “inaction xxx deemed a denial” of the CIR within the 120 day period, the CTA has no jurisdiction over a petition for review. (CIR vs. San Roque Power Corporation;Taganito Mining Corporation vs. CIR; Philex Mining Corporation vs. CIR; G.R. No. 187485/G.R. No. 196113/G.R. No. 197156. February 12, 2013); After receipt of decision issued by the BIR denying the claim for refund OR in case of nonaction by the BIR, the TX may, within THIRTY (30) DAYS from receipt of t he actual decision or THIRTY (30) DAYS from expiration of the 120 day period, go to CTA Division for appeal; The 30-day period provided for under Section 112 (C) of the National Internal Revenue Code (NIRC) within which to appeal the decision of the Commissioner of Internal Revenue (CIR) to the Court of Tax Appeals (CTA) need not necessarily fall within the twoyear prescriptive period;

28. Refund of Illegally Assessed, Illegally Collected, Erroneously Assessed, Erroneously Collected Internal Revenue Taxes including penalties under Section 229, NIRC Administrative claim for refund should be filed with BIR within 2 years from payment and Judicial claim for refund should be filed with CTA within the same 2 year period from payment. ( CIR vs. Goodyear Phils, Inc., GR 216130, 03 August 2016) 29.

ESTATE AND DONOR’S TAX (location of the property determines taxability)

Located within the Phils. Located outside the Phils.

RC

NRC

NA

NRA

















30. Transfers of property not subject to estate tax: (Section 87, NIRC) a. The merger of usufruct in the owner of the naked title; b. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary heir; c. The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor; and d. All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which insures to the benefit of any individual: Provided, however, That not more than thirty percent (30%) of the said bequests, devises, legacies or transfers shall be used by such institutions for administration purposes; 31. Donor’s Tax a. donative intent is required; 2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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b. in case of waiver of inheritance which is generic, NO DONOR’S TAX, but if specific as to a co-heir, or specific as to the share, DONOR’S TAX IS IMPOSED; c. if net gift does not exceed P 100,000.00, the same shall be exempt from DT, thus, as long as the gifts per year do not exceed P 100,000.00 no DT; This rule, however, applies only if the donor and the donee are ―NOT STRANGERS‖; If donor and donee are STRANGERS, any amount of gift ( below or more than P 100,000.00) is subject to 30% DT; d. The following are not strangers: (i) Ascendants (without limit) (ii) Descendants ( without limit) (iii) Relatives in the collateral line within the 4th degree of relationship)

32. Table on Remedies under NIRC, LGC of 1991, CMTA (tariff and customs duties)

See attached table (Annex A) 33. SUBSTITUTED FILING: applies ONLY to a compensation income earner who: a. is employed only by one employer b. there is no other form of income but compensation c. not received any investigation prior to said substituted filing 34. Amendment of Return: A return may be amended within 3 years from the date of filing of the original return provided that no notice of investigation has ACTUALLY been received by the taxpayer; 35. No Preliminary Assessment Notice (PAN) is required (Sec. 228, NIRC): a. When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or b. When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or c. When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable yr; or d. When the excise tax due on excisable articles has not been paid; or e. When an article locally purchased or imported by an exempt person, such as, not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons. 36. GROUNDS FOR SUSPENSION OF PRESCRIPTIVE PERIOD OF ASSESSMENT 1. Taxpayer requests for reinvestigation which is granted by the Commissioner 2. Taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected 3. When the warrant of distraint or levy is duly served upon the taxpayer and no property could be located 4. When the taxpayer is out of the Philippines

2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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The date of issuance AND receipt of prescriptive period.

notice of assessment is important in determining

37. Prescriptive Periods: DATE OF FILING OF RETURN

PRESCRIPTIVE PERIODS for ASSESSMENT

Filed before due date

3 years from due date

Filed on due date

3 years from due date

Fled beyond due date

3 years from actual filing

Fraudulent filing

10 yes from discovery of bad faith/fraud

Non-filing

10 years from discovery of nonfiling

WAIVER BY TX: Depends on the agreement of the parties provided that the agreement to extend is executed prior to expiration of the original period of assessment;

PRESCRIPTIVE PERIODS OF COLLECTION

5 YEARS FROM RECEIPT BY TX OF FAN;

NOTE: IF TX FILES FRAUDULENT RETURN OR DID NOT FILE ANY RETURN, BIR MAY COLLECT WITHOUT ASSESSMENT WITHIN 10 YEARS FROM DISCOVERY OF FILING OF FRAUDULENT RETURN OR DISCOVERY OF NON-FILING

38. Requirements of valid waiver CIR vs STANDARD CHARTERED BANK, Respondent. G.R. No. 192173, July 29, 2015 1. With signatures of both the CIR and the taxpayer; 2. date of acceptance by the BIR is necessary in order to determine whether the parties (the taxpayer and the government) had entered into a waiver ―before the expiration of the time prescribed in Section 203 (the three-year prescriptive period) for the assessment of the tax; 3. The waiver should be duly notarized; 4. CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated; 5. waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver 39. Service of FAN (RR 18-2013 dated Nov 18, 2013) ) a. Personal service to the party at his registered or known address or wherever he may be found. A known address shall mean a place other than the registered address where business activities of the party are conducted or his place of residence. b. If personal service is not practicable, the notice shall be served by substituted service or by mail. Substituted service can be resorted to when the party is not present at the registered or known address under the following circumstances: The notice may be left at the party’s registered address, with his clerk or with a person having charge thereof. 2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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If the known address is a place where business activities of the party are conducted, the notice may be left with his clerk or with a person having charge thereof. If the known address is the place of residence, substituted service can be made by leaving the copy with a person of legal age residing therein. If no person is found in the party’s registered or known address, the revenue officers concerned shall bring a barangay official and two (2) disinterested witnesses to the address so that they may personally observe and attest to such absence. The notice shall then be given to said barangay official. Such facts shall be contained in the bottom portion of the notice, as well as the names, official position and signatures of the witnesses. Should the party be found at his registered or known address or any other place but refuse to receive the notice, the revenue officers concerned shall bring a barangay official and two (2) disinterested witnesses in the presence of the party so that they may personally observe and attest to such act of refusal. The notice shall then be given to said barangay official. Such facts shall be contained in the bottom portion of the notice, as well as the names, official position and signatures of the witnesses. ―Disinterested witnesses‖ refers to persons of legal age other than employees of the Bureau of Internal Revenue. c. Service by mail is done by sending a copy of the notice by registered mail to the registered or known address of the party with instruction to the Postmaster to return the mail to the sender after ten (10) days, if undelivered. A copy of the notice may also be sent through reputable professional courier service. If no registry or reputable professional courier service is available in the locality of the addressee, service may be done by ordinary mail. The server shall accomplish the bottom portion of the notice. He shall also make a written report under oath before a Notary Public or any person authorized to administer oath under Section 14 of the NIRC, as amended, setting forth the manner, place and date of service, the name of the person/barangay official/professional courier service company who received the same and such other relevant information. The registry receipt issued by the post office or the official receipt issued by the professional courier company containing sufficiently identifiable details of the transaction shall constitute sufficient proof of mailing and shall be attached to the case docket. Service to the tax agent/practitioner, who is appointed by the taxpayer under circumstances prescribed in the pertinent regulations on accreditation of tax agents, shall be deemed service to the taxpayer.‖

40. RECEIPT OF FAN NEED NOT BE WITHIN THE PRESCRIPTIVE PERIODS CIR vs GJM Philippines Manufacturing Inc. GR 202695 29 Feb 2016 The prescriptive period for issuance of FAN is 3 years from due date if return is filed on or before due date and if filed beyond due date, 3 years from date of actual filing. When an assessment is made within the prescriptive period, receipt by the taxpayer may or may not be within said period. 2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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It is a requirement that the taxpayer should actually receive the assessment notice, even if beyond the prescriptive period. If the taxpayer denies receipt of FAN, onus probandi has shifts to the BIR to show by contrary evidence that TX indeed received the assessment in the due course of mail. It has been settled that while a mailed letter is deemed received by the addressee in the course of mail, this is merely a disputable presumption subject to controversion, the direct denial of which shifts the burden to the sender to prove that the mailed letter was, in fact, received by the addressee. 41. CIR vs Liquigaz Philippines GR 215534/215557 18 April 2016 When may a Final Decision on Disputed Assessment (FDDA) be declared void, and in the event that the FDDA is found void, what would be its effect on the tax assessment? An assessment is void if the taxpayer is not notified in writing of the facts and law on which it is made. The requirement of informing the taxpayer of the legal and factual bases of the assessment and the decision made against him applies both to the FLD/FAN and the FDDA. The invalidity of FDDA does not necessarily result to the invalidity of the FAN/PAN other—unless the law or regulations otherwise provide. A "decision" differs from an "assessment" and failure of the FDDA to state the facts and law on which it is based renders the decision void-but not necessarily the assessment. Tax laws may not be extended by implication beyond the clear import of their language, nor their operation enlarged so as to embrace matters not specifically provided. 42. COURT OF TAX APPEALS (CTA) a. Does the CTA EB have jurisdiction over petitions for annulment of judgment rendered by CTA DIV? (CIR vs Kepco Corporation GR 199422 21 June 2016) NO. Revised Rules of the CTA and Rules of Court are silent on this. A direct petition for annulment of a judgment of the CTA to the Supreme Court, meanwhile, is likewise unavailing, for the same reason that there is no identical remedy with the High Court to annul a final and executory judgment of the Court of Appeals. The remedy is to file a petition for certiorari under Rule 65 which can be filed before the Supreme Court and not before the CTA EB; CTA En Banc has no jurisdiction over original petitions for annulment of judgment/decision rendered by CTA Division. b. Can the CTA DIV allow the withdrawal of petition for review filed by TX after full trial on the merits before the CTA DIV? (CIR vs. NIPPON EXPRESS (PHILS.) CORPORATION G.R. No. 212920, September 16, 2015) BIR issued Tax credit certificate pending TX petition for review before the CTA Division. TX filed a motion to withdraw the petition for review. An appeal may be withdrawn as of right at any time before the filing of the appellee's brief. Thereafter, the withdrawal may be allowed in the discretion of the court. In this case however, CTA DIV should not have granted the motion to withdraw considering that the Decision was rendered by the CTA Division after a 2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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full-blown hearing in which the parties had already ventilated their claims. Thus, the findings contained therein were the results of an exhaustive study of the pleadings and a judicious evaluation of the evidence submitted by the parties, as well as the report of the commissioned certified public accountant. Jurisdiction, once acquired, is not lost upon the instance of the parties, but continues until the case is terminated AND cannot be lost by the unilateral withdrawal of the petition. The CTA DIV found that TX was only entitled to refund the reduced amount of P2.6 M since it failed to prove that the recipients of its services were nonresidents "doing business outside the Philippines"; hence, Nippon's purported sales do not qualify as 0% necessitating the reduction in the amount of refund claimed. On the other hand, the tax credit certificate provides for the amount of P21,675,128.91 which is, in all, P19,060,832.07 larger than the amount found due by the CTA Division. c. Does CTA have jurisdiction over petitions for certiorari of DOJ resolution rendered in a preliminary investigation case involving tax and tariff offenses? BOC vs THE HONORABLE AGNES VST DEVANADERA, ACTING SECRETARY, DEPARTMENT OF JUSTICE, et.al G.R. No. 193253, September 08, 2015 CTA has jurisdiction over a special civil action for certiorari questioning an interlocutory order of the RTC in a local tax case. CTA has original jurisdiction over a petition for certiorari assailing the DOJ resolution in a preliminary investigation involving tax and tariff offenses. CA's original jurisdiction over a petition for certiorari assailing the DOJ resolution in a preliminary investigation involving tax and tariff offenses was necessarily transferred to the CTA and that such petition shall be governed by Rule 65 of the Rules of Court, as amended. Accordingly, it is the CTA, not the CA, which has jurisdiction over the petition for certiorari assailing the DOJ resolution of dismissal of the BOC's complaint-affidavit against private respondents for violation of the TCCR. d. What is the remedy in case CTA DIV issues interlocutory orders ( ex: granting motion to declare in default)? Can you file a petition for review before the CTA EB? CIR vs CTA AND CBK POWER COMPANY LIMITED G.R. Nos. 203054-55, July 29, 2015 CTA Order granting motion to declare petitioner as in default and allowing presentation of evidence ex parte, is an interlocutory order as CTA did not finally dispose of the case on the merits but will proceed for the reception of the evidence Even the CTA's subsequent orders denying motion to lift order of default and denying reconsideration thereof are all interlocutory orders since they pertain to the order of default. Since the CTA Orders are merely interlocutory, no appeal can be taken therefrom. Remedy is to file appropriate special civil action for certiorari under Rule 65 before the Supreme Court. Filing a petition for review before the CTA EB is not the proper remedy; e. What is the available remedy in case of BIR’s interpretation of tax provision versus decision on disputed assessment? (i). CIR vs CTA (SECOND DIVISION) AND PETRON CORPORATION G.R. No. 2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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207843, July 15, 2015 CIR's interpretation of a tax provision involves an exercise of her quasi-legislative functions, the proper recourse against the subject tax ruling is a review by the Secretary of Finance and ultimately the regular courts. The power to interpret the provisions of NIRC and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under NIRC or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals (ii). Clark Investors and Locators Association Inc. vs Sec of Finance and CIR GR 200670 July 6 2016 BIR’s act of issuing RR 2-2012 is not in the exercise of any judicial or quasi-judicial capacity, thus, petition for certiorari under Rule 65 of Rules on Civil Procedure is NOT the proper remedy. RR 2- 2012 was issued in the exercise of BIR’s quasilegislative or rule-making powers, thus proper remedy is review by Sec of Finance and eventually by regular courts; f. Does CTA, NOT CA, have exclusive appellate jurisdiction over BOC tax collection cases decided by the RTC? Is it proper for CA to refer the appeal to CTA instead of dismissing the notice of appeal for lack of jurisdiction? MITSUBISHI MOTORS PHILIPPINES CORPORATION VS BOC GR 209830 JUNE 17 2015 BOC filed collection case against Mitsubishi before the RTC, Manila. RTC granted Mitsubishi’s demurrer to evidence and dismissed the collection case. BOC filed a notice of appeal to Court of Appeals. CA, instead of dismissing the notice of appeal for lack of jurisdiction, referred the records of the collection case to the CTA for proper disposition of the appeal taken by respondent. Ruling: CTA has exclusive appellate jurisdiction over tax collection cases originally decided by the RTC. CA has no jurisdiction over respondent’s appeal; hence, it cannot perform any action on the same except to order its dismissal. Therefore, the act of the CA in referring respondent’s wrongful appeal before it to the CTA under the guise of furthering the interests of substantial justice is NOT PROPER; g. What is the jurisdiction of CTA over tariff and customs duties? Commissioner of

Customs Vs. Oilink International Corporation 
G.R. No. 161759. July 2, 2014 CTA: exclusive appellate jurisdiction to review by appeal ― Decisions of the BOC Commissioner in cases involving liability for Customs duties, fees or other money charges; seizure, detention or release of property affected; fines, forfeitures or other penalties imposed in relation thereto; or other matters arising under the Customs Law or other law or part of law administered by the Bureau of Customs; Decision that is appealable to the CTA is a judgment or order of the Commissioner of Customs that is final in nature, not merely an interlocutory order;

2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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h. Is the ruling of the CIR subject to review by the Secretary of Finance under Sec. 4 of the NIRC, and that of the Secretary to the CA via Rule 43? Philippine American Life and General Insurance Company Vs. Secretary of Finance and the CIR 
 G.R. No. 210987 November 24, 2014 CTA is the proper forum with which to institute the appeal. This is not, and should not, in any way, be taken as a derogation of the power of the Office of President but merely as recognition that matters calling for technical knowledge should be handled by the agency or quasi- judicial body with specialization over the controversy. CTA has the power to determine whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the RTC in issuing an interlocutory order in cases falling within the exclusive appellate jurisdiction of the tax court. CTA, by constitutional mandate, is vested with jurisdiction to issue writs of certiorari in these cases.

i. VERY

IMPORTANT CASES:

Does CTA have the power to issue injunction against BIR tax collection cases. What is the requirement for CTA to fix the bond? Tridmaha Marketing Corporation vs CTA et al; GR 215950 20 June 2016; SPOUSES EMMANUEL D. PACQUIAO AND JINKEE J. PACQUIAO vs. THE COURT OF TAX APPEALS - FIRST DIVISION AND CIR G.R. No. 213394, April 06, 2016 CTA has power to fix the surety bond posted by the TX as a condition precedent to suspend the collection case filed by BIR. Fixing the bond five times more than the net worth of TX without conducting a preliminary hearing to ascertain whether there were grounds to suspend the collection of the deficiency assessment is not proper. CTA Division must consider other factors like whether or not the assessment would jeopardize the interest of the taxpayer, or whether the means adopted by the CIR in determining the liability of the taxpayer was legal and valid. In the earlier case of Manny Pacquiao, Supreme Court deems it best to remand the matter involving the petitioner's plea against the correctness of the deficiency assessment to the CTA for the conduct of a preliminary hearing in order to determine whether the required surety bond should be dispensed with or reduced. Absent any evidence and preliminary determination by the CTA, the Court cannot make any factual finding and settle the issue of whether the petitioners should comply with the security requirement under Section 11, R.A. No. 1125. The determination of whether the methods, employed by the CIR in its assessment, jeopardized the interests of a taxpayer for being patently in violation of the law is a question of fact that calls for the reception of evidence which would serve as basis. In this regard, the CTA is in a better position to initiate this given its time and resources. The remand of the case to the CTA on this question is, therefore, more sensible and proper.

2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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43. In claims for refund of local taxes which was denied by the Treasurer, which court has jurisdiction? Chinabanking Corporation vs City Treasurer of Manila GR 204117 July 1 2015 Follow jurisdictional amount of first level court and RTC: In claim for refund of local taxes and after the Treasurer denies the claim for refund, where the amount sought to be refunded is below the jurisdictional amount of the RTC, the Metropolitan, Municipal, and Municipal Circuit Trial Courts are clothed with ample authority to rule on such claims; Under R.A. No. 9282, the authority to exercise either original or appellate jurisdiction by the MTC or the RTC over local tax cases depended on the amount of the claim. 44. Requisites of Tax Delinquency Sale ( LGC of 1991): Corporate Strategies Development Corporation and Rafael R. Prieto Vs. Norman A. Agojo G.R. No. 208740 November 19, 2014. Burden to prove compliance with the validity of the proceedings leading up to the tax delinquency sale of real property is incumbent upon the buyer or the winning bidder. 45. NPC vs. MUNICIPAL GOVERNMENT OF NAVOTAS; GR 192300; 24 November 2014 FACTS: NPC entered into a BOT agreement with private corporation covering gas turbine power stations wherein the power stations are in the actual control and supervision of NPC. LGU issues an RPT assessment. NPC argues that the properties are exempt from RPT. Instead of exhausting administrative remedies of filing protest, then appeal to LBAA and CBAA, NPC filed declaratory relief with RTC assailing the validity of assessment NOT the reasonableness or correctness of assessment. RULING: A. When the legality or validity of the assessment is in question, and not its reasonableness or correctness, appeals to the LBAA, and subsequently to the CBAA, are not necessary. Stated differently, in the event that the taxpayer questions the authority and power of the assessor to impose the assessment, and of the treasurer to collect the real property tax, resort to judicial action ( ORDINARY COURTS) may prosper. In the case at bench, the petitioners are questioning the very authority and power of the assessor, acting solely and independently, to impose the assessment and of the treasurer to collect the tax. These are not questions merely of amounts of the increase in the tax but attacks on the very validity of any increase. If the only issue is the legality or validity of the assessment – a question of law – direct recourse to the RTC is warranted. B. As a rule, administrative remedies (PROTEST, LBAA, CBAA) must first be exhausted before resort to judicial action can prosper, there is a well-settled exception in cases where the controversy does not involve questions of fact but only of law. The proceedings of the LBAA shall be conducted solely for the purpose of ascertaining the facts . . . ." It follows that appeals to this Board (LBAA) may be fruitful only where questions of fact are involved. Again, the protest contemplated under Sec. 252 of R.A. 7160 is needed where there is a question as to the reasonableness of the amount assessed. Hence, if a taxpayer disputes the reasonableness of an increase in a real estate tax assessment, he is required to "first pay the tax" under protest. Otherwise, the city or municipal treasurer will not act on his protest. C. CTA Division has jurisdiction over decisions of the RTC in petitions for declaratory relief filed by TX assailing the validity of assessment on the ground of exemption from RPT. D. The real property tax for any year shall accrue on the first day of January and from that date it shall constitute a lien on the property which shall be superior to any other lien, 2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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mortgage, or encumbrance of any kind whatsoever, and shall be extinguished only upon the payment of the delinquent tax. E. It is the City or Municipal Treasurer’s Office which collects RPT; F. Notice of Time for Collection of Tax. The city or municipal treasurer shall, on or before the thirty-first (31st) day of January each year, post the notice of the dates when the tax may be paid without interest at a conspicuous and publicly accessible place at the city or municipal hall. Said notice shall likewise be published in a newspaper of general circulation in the locality once a week for two (2) consecutive weeks. G. Payment Under Protest is required in protest of RPT: 30 days from payment of tax and filed before provincial, city treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila Area. Treasurer decides within 60 days. If denied or after lapse of 60 day period TX may go to LBAA (60 days) then to CBAA (30 days); 46. Is the LGU empowered under the LGC to impose business taxes on persons or entities engaged in the business of manufacturing and distribution of petroleum products? Batangas City vs Pilipinas Shell Petroleum Corporation GR 187631 July 8 2015; Section 133 of the LGC is a specific provision that explicitly withhold from LGUs the power to impose taxes, fees and charges on petroleum products. Strictly speaking, as long as the subject matter of the taxing powers of the LGUs is the petroleum products per se or even the activity or privilege related to the petroleum products, such as manufacturing and distribution of said products, it is covered by the said limitation and thus, no levy can be imposed; Article 232 of LGC defines with more particularity the capacity of a municipality to impose business taxes on businesses except businesses engaged in the production, manufacture, refining, distribution or sale of oil, gasoline, and other petroleum products; 47. VIP: Redemption of property in case of forfeiture: City of Davao vs. Intestate Estate of Amado Dalisay GR 207791 July 15, 2015; Under LGC of 1991, in case of forfeiture of real property (sold at public auction and without any bidder), redemption period of 1 year is reckoned from date of purchase by LGU ( date of auction/sale) of the property for want of any bidder NOT from issuance by LGU of certificate of forfeiture. Forfeiture of tax delinquent properties transpires no later than the purchase made by the city due to lack of a bidder from the public. This happens on the date of the sale, and not upon the issuance of the declaration of forfeiture. 48. VIP: Redemption of Property Sold in case of levy and distraint: LGC OF 1991 Within one (1) year from the date of sale, the delinquent taxpayer or his representative shall have the right to redeem the property upon payment to the local treasurer of the total amount of taxes, fees, or charges, and related surcharges, interests or penalties from the date of delinquency to the date of sale, plus interest of not more than two percent (2%) per month on the purchase price from the date of purchase to the date of redemption. Such payment shall invalidate the certificate of sale issued to the purchaser and the owner shall be entitled to a certificate of redemption from the provincial, city or municipal treasurer or his deputy. 2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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49. Personal Property Exempt from Distraint or Levy: LGC OF 1991 I (a) Tools and implements necessarily used by the delinquent taxpayer in his trade or employment; (b) One (1) horse, cow, carabao, or other beast of burden, such as the delinquent taxpayer may select, and necessarily used by him in his ordinary occupation; (c) His necessary clothing, and that of all his family; (d) Household furniture and utensils necessary for housekeeping and used for that purpose by the delinquent taxpayer, such as he may select, of a value not exceeding Ten thousand pesos (P10,000.00); (e) Provisions, including crops, actually provided for individual or family use sufficient for four (4) months; (f) The professional libraries of doctors, engineers, lawyers and judges; (g) One fishing boat and net, not exceeding the total value of Ten thousand pesos (P10,000.00), by the lawful use of which a fisherman earns his livelihood; and (h) Any material or article forming part of a house or improvement of any real property. 50. REAL PROPERTY TAXATION a. Two (2) aspects: a. Appraisal and Assessment by the Assessor’s Office; "Appraisal" is the act or process of determining the value of property as of a specified date for a specific purpose; "Assessment" is the act or process of determining the value of a property, or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of properties; b. Levy and Collection by the Treasurer’s Office; b. what constitutes real properties? -

properties covered by Article 415 of the Civil Code; Airfield, runway and taxiway and the lots on which the runway and taxiway are located; - Underground tanks; - Gasoline tanks permanently attached to the soil; - Machineries and equipment; - Underground cables; - Submarine or undersea communication cables; - Oil pipes; - Boathouse if tied to the shore and used as residence c. Idle lands maybe exempt from RET due to valid causes such as force majeure, civil disturbance, natural calamity, or any other reason which prevents the owner from utilizing the property 2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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d. Exemption from RET shall be based on the actual use not the ownership; e. Unpaid RET attaches to the land and not the owner, thus, the remedy of lien available to the government 51. EXEMPTION FROM REAL ESTATE TAX (a). real properties owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration to a taxable person; (b). charitable institutions, churches, parsonages, convents, mosques, or religious cemeteries and all L, B, and I, ADE for religious, charitable, and educational purposes; ©. Machineries and equipment ADE by local water utilities and GOCC’s engaged in supply/distribution of water and/or generation of electric power; (d). real properties owned by cooperatives; (e). machinery and equipment used for pollution control and environment protection.

52. VIP: TARIFF AND CUSTOMS: CIR vs. United Cadiz Sugar Farmers Association MultiPurpose Coop GR 209776 07 December 2016; Abandonment, Kinds and Effects of. - An imported article is deemed abandoned under any of the following circumstances: (a) When the owner, importer, or consignee of the imported article expressly signifies in writing to the Collector of Customs his intentions to abandon; or (b) When the owner, importer, consignee or interested party after due notice, fails to file an entry within thirty (30) days, which shall not be extendible, from the date of discharge of the last package from the vessel or aircraft, or having filed such entry, fails to claim his importation within fifteen (15) days which shall not likewise be extendible, from the date of posting of the notice to claim such importation. (Emphasis supplied) Any person who abandons an article or who fails to claim his importation as provided for in the preceding paragraph shall be deemed to have renounced all his interests and property rights therein. An abandoned article shall ipso facto be deemed the property of the Government and shall be disposed of in accordance with the provisions of this Code. ___________________________________________________________________

GOOD LUCK… DO NOT UPLOAD IN ANY WEBSITE….

2017 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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